How Low Will Wynn Resorts Go?

Shares of Wynn Resorts (Nasdaq: WYNN  ) hit a 52-week low in early trading yesterday. Let's look at how it got here and see if clear skies or clouds are ahead.

How it got here
The last year has seen slowing momentum for Wynn Resorts operationally, and since the market had priced in so much growth, the stock has come tumbling down. During the first quarter, revenue grew a disappointing 4.2% as a decline in Las Vegas revenue offset growth in Macau. After years of growth, even the Macau numbers were a bit disappointing for investors, and the reason for the disappointment won't change for a few years.

Recently there have been two trends driving down shares. First, the company's property on the Macau Peninsula is underperforming rivals Las Vegas Sands (NYSE: LVS  ) and Melco Crown (Nasdaq: MPEL  ) on the Cotai Strip. Wynn and MGM Resorts (NYSE: MGM  ) are invested in the older part of Macau and now that more resorts are open on Cotai the gaming revenue has shifted there. Second, a continuing labor shortage in Macau may delay the company's recently approved resort on Cotai.

The move of gaming revenue to Cotai has been the biggest reason for Melco Crown and Las Vegas Sands outperforming Wynn over the past year.

WYNN Chart

WYNN data by YCharts

Just because the stock has suffered doesn't mean Wynn is down and out completely. The company had strong revenue growth in 2011 and gross margin that was only beaten by Las Vegas Sands.

Company

2011 Revenue Growth

2011 EBITDA Margin

Enterprise Value/EBITDA

Forward P/E

Wynn Resorts 25.9% 31% 9.5 14.6
Las Vegas Sands 37.3% 37.5% 11.0 15.2
Melco Crown 50% 21.1% 8.3 14.4
MGM Resorts 29.6% 22.3% 10.2 n/a

Note: MGM 2011 results include consolidated Macau operations.

An enterprise value/EBITDA under 10 also gives shares a reasonable valuation, although it isn't the best in the industry.

What's next?
Right now there is a lot of negativity priced into the stock, and I think some of that will fade away eventually. The opening of Sands Cotai Central will probably keep some visitors away from the Macau Peninsula for some time, but I don't expect growth to stop for Wynn in Macau. The negative growth the company felt in Las Vegas in the first quarter also isn't going to last as the city slowly returns to form.

Long term, the company is building a property on Cotai that will drive growth if you can wait for the resort to be completed.

I think that Wynn and other gaming stocks have fallen too far in the last month, and I've become a buyer of the industry. Last week I bought both Wynn and Melco Crown, so when I say that Wynn is a buy, my money is where my mouth is. Your risk tolerance should determine which gaming stock is for you, but for those with the highest risk tolerance, Wynn is a solid pick right now.

Interested in reading more about Wynn Resorts? Click here to add it to My Watchlist, and My Watchlist will find all of our Foolish analysis on this stock.

Fool contributor Travis Hoium manages an account that owns shares of Wynn Resorts and Melco Crown. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings or follow his CAPS picks at TMFFlushDraw.

The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


Read/Post Comments (7) | Recommend This Article (2)

Comments from our Foolish Readers

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  • Report this Comment On May 22, 2012, at 12:28 PM, cp757 wrote:

    Travis I thought you would do a better job talking about Las Vegas Sands but you didn't. I get it, you hate LVS but it is the only stock with the growth an investor should buy. You focus on Macau because they have Cotai Central with almost all of the Macau growth for 4 years. You do tell readers WYNN is not in Cotai Central but Las Vegas Sands is. You don't mention Singapore and The Marina Bay Sands at all. Asian markets provided 87% of the revenue for LVS but Singapore provided more of the revenue, percentage wise ( 44% and 43%), than the more mature Macau market. Marina Bay Sands in Singapore provided a record quarterly adjusted property EBITDA of $472.5 million, up 66.1%. The hotel is packed( 98.4%) so they had to raise the room rates ( that's a good problem ) so the room revenue increased 38.2% to $77.1 million for the first 3 months of 2012. They have retail stores in the MBS mall that had an increase in revenue of 25.0% to $34.5 million. That's over 11 million a month for hand bags and shoes. Las Vegas Sands has the two biggest markets in the world and very little competition in Asia. Singapore is still the biggest story never told and you still did not tell it. You did buy both Wynn and Melco Crown and you recommended to your readers to buy WYNN at 112 dollars in 2010. I would think the market will tell everyone what company is the best buy but I still want to buy "Revenue Growth". If a company can grow revenue at the rate LVS does I want in. I own shares of LVS, so that's my full disclosure but I don't think Wynn is a very solid pick right now.

  • Report this Comment On May 22, 2012, at 2:56 PM, JF125780 wrote:

    cp757

    I don't think you are being fair with Travis, I have read several of his articles and he does a very good job of bringing out the growth, value and future of LVS.

    I own LVS, Wynn, MGM, and Boyd. Most of my portfolio is in LVS and most of the information that Travis brings out I already know, but I'm grateful that he challenges the negative reports that so many of the other writers bring out which are so far out that they don't add up.

    Danny Kowkabany

  • Report this Comment On May 22, 2012, at 5:04 PM, cp757 wrote:

    JF125780 with regaurds to Travis and his growth story on Las Vegas Sands. If you read this story he only talks about how good he feels WYNN is doing and the truth is Wynn will be lucky to hold on to market share in the Macau Peninsula and even may have problems with market share in Vegas if first quarter revenue is any indication. Wynn has to find financing for his new project in Cotai Central and will make interest payment on that plus interest on his Okada loan which may have more interest than he bargained for. Thats before he can make more money in 2016 or 2017. Travis has done some good stories about LVS but only when he had to and I told him I thought they where good. He likes WYNN and this story shows that. I get that he wants WYNN to go up but they still don't have a good catalyst until 2016 or 2017. They are going to have problems getting workers to build the new casino as well as staff it. They will have legal problems over the Okada deal and all of this is swept under the rug. He wants only good things said about WYNN and he is writing the story so I will be posting what I think about the story. Thats the way it works I think.

  • Report this Comment On May 23, 2012, at 11:41 AM, JF125780 wrote:

    cp757

    You have made some good points, but Steve Wynn is brilliant when he has to be and financing won't be a problem for him.

    As for Okada, well all corporations have law suits such as LVS and Jacobs.

    China also has good leadership and they will allow workers into Macau when necessary. They are just trying to keep the salaries up.

    LVS and Wynn will do quite well and you and I will both be pleased in the long term.

    Danny Kowkabany

  • Report this Comment On May 23, 2012, at 2:03 PM, cp757 wrote:

    Danny I understand what you are saying but my point is WYNN will not have the increase in revenue for 4 years. They have lost market share in Vegas and they will report a loss of market share in Macau in the next Conference Call. The idea that the Okada deal is over is not very responsible when Goldman Sachs is involved. They lost money when Steve Wynn took the shares they owned in WYNN they will get it back and it won't take ten years. When you have share holder lawsuit's and "he said-she said" arguments the stock's always have problems. Steve Wynn already played this same game with Kirk Kerkorian with Steve playing the roll of Okada.

  • Report this Comment On May 23, 2012, at 2:56 PM, JF125780 wrote:

    Thanks cp757, It's always interesting to talk to bloggers who are knowledgeable.

    Danny Kowkabany

  • Report this Comment On May 26, 2012, at 12:25 PM, cp757 wrote:

    The valuation picture for Las Vegas Sands is not in line with the industry average in terms of price to earnings. The trailing twelve month PE multiple of 25x for Las Vegas Sands is in line with the industry average but the forward PE multiple is the story that investors are not looking at. Las Vegas Sands has a forward PE multiple of 15.16x and that is so far below the industry average of 23x that buying the stock is an easy decision. Given that the next Conference Call will have a better idea of all the new revenue for the Marina Bay Sands and Cotai Central I think the stock will be much higher and more likely over 60 dollars a share. Thats a 25% increase over todays price and we will know in July. The cash that LVS is building is very impressive and with the low interest rates they are in a good position to increase dividends which they have said they could do. With 22.87 billion in assets and 4.061 billion in cash the balance sheet is unmatched in the industry. To give you an idea Wynn only has 7.4 billion in assets with 6.962 billion in liabilities and the forward growth of the company has fallen from over 30% to just 4.22% while Las Vegas Sands has soared to 30.82% future growth and that does not take into consideration higher market share in Singapore, Macau,Vegas, and Pennsylvania at the next Conference Call. Sheldon Adelson has always talked about growth and he moves in the market place to his own vision even when they told him to stop in Macau, and Singapore. He sees what he wants to accomplish and he builds it in the same way Steve Jobs saw his future and built AAPL, Adelson has overcome every obstacle to have growth and build Las Vegas Sands.

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